Opening this issue based on feedback in #32569 (comment).

When we first introduced the ellipses menu into the Widget editors, only one Preference was available (compared to 10+ available in the post editor), so it was introduced as an inline option within the ellipses menu. Now that we are starting to adding more Preferences, we should look at introducing the Preferences modal.

One consideration is that there are only two Preferences available currently, which would reduce the submenu down to two pages with one item on each. But I think the UI holds up and will likely get more filled in over time:

Since there's currently only one Preference available to the Customize Widgets screen, I would lean towards leaving that as an inline option in the ellipses menu until at least one more option is added.